Special VAT Refund Schemes in Dubai
Special VAT Refund Schemes in UAE
VAT came into effect in the UAE on January 1, 2018. The FTA requires most of the sectors to pay VAT at a rate of 5% or 0% on the supplies of goods and services. It exempts certain goods and services from VAT.
Besides, there exist some cases wherein specified persons pay VAT on purchases made in UAE, but they can claim refunds through special VAT refund schemes. But they can do so only if they meet some conditions laid down by the government in VAT rules.
In this article, let us look at these special VAT refund schemes.
VAT Refund Scheme for Tourists
Tourism is a big industry for any country. Tourism contributes a big amount to UAE’s economy. And, the government does not want the tourists to be discouraged from shopping in UAE by charging VAT on the goods bought in the country. So, the UAE government has introduced the VAT refund scheme for tourists.
The VAT refund scheme for tourists came into effect on November 18, 2018. This scheme aims to support tourism in the country by giving them a refund on the VAT they paid while purchasing goods and services in UAE. With the provision of refunds, tourists can reduce their expenses, and hence, overall costs.
This scheme applies to overseas tourists that are not residents of any of the VAT implementing states in GCC. Also, this scheme is not available to flight crew members or aircraft crew members that are leaving UAE.
The overseas tourist must satisfy the below conditions to become eligible for the VAT refund scheme:
- The overseas tourist must be in UAE while buying the goods (goods which are subject to tax refund scheme) from the supplier
- The overseas tourist must buy the goods from retailers who are participants in this scheme
- The overseas tourist must show its intention to leave UAE within 90 days of the date of supply along with the goods purchased
- The overseas tourist must export the VAT-applicable supplies outside UAE within three months of the date of supply, after complying with the FTA-imposed verifications and checks
For tourists, the government introduced a fully-integrated electronic system. On this system, retailers registered under this scheme are connected with all points of entry and exit of tourists via land, air, or sea.
Once tourists purchase goods from such registered retailers, they can claim VAT refunds. Tourists must submit copies of their tax invoices, passport, and credit card on this system. Once documents are verified as sufficient and satisfactory, tourists can obtain either cash or direct transfer to their card account.
If retailers have registered and enrolled under this scheme, they need to mention the details in their returns. They have to fill the Form No. 201 for VAT returns. Under the section of ‘VAT on Sales and All Other Outputs’, a separate box is available – ‘Tax Refunds provided to tourists under the tax refunds for Tourists scheme’.
Business VAT Refund Scheme
Foreign businesses established in a jurisdiction outside the UAE visit UAE for business purposes. They spend on some expenses in the country. But, they can recover the VAT paid on these expenses. This is because the UAE government has introduced the business VAT refund scheme for foreign businesses, excluding foreign government entities.
To be eligible to claim refunds under this scheme, foreign businesses need to satisfy the below conditions:
- The business owner must not be a taxable person in the UAE
- The business must not carry out business in UAE
- They must have no fixed establishment or any establishment in UAE or any other VAT-implementing GCC state
- They must be registered for business and VAT with a competent authority in some other jurisdiction where they are established
Also, the below conditions must be fulfilled:
- The business must not make supplies in UAE
- The input tax on goods or services must be recoverable by a taxable person
- The business must be from a country that is eligible to provide VAT refunds to UAE businesses under similar settings
- The business must not be a non-resident tour operator
If the business satisfies the above conditions, then it is eligible to apply for VAT refunds under this scheme. To claim the refund, it needs to provide the following information:
- Original tax compliance certificate issued by the competent authority of the jurisdiction of its operations, reflecting the Tax Registration Number. It must be attested by the UAE Embassy in the country of tax registration.
- Passport copy of the authorized signatory
- Proof of authority of the authorized signatory
- Proof that it has paid VAT on the expenses incurred in UAE, including VAT invoices and receipts
- Evidence from its tax authority on the amount of input tax it can recover on expenses in its home jurisdiction, if it is carrying out exempt or non-business activities
With these proofs and information, it can apply for VAT refunds on the FTA e-services portal. It must create a taxable person account and check the Business Visitors Refunds dashboard.
After submitting the online form, it must prepare an envelope containing the reference number of the online application and the original copies of tax invoices, proofs of payments, and Tax Compliance Certificate and send them to FTA. As an alternative, it can send an email with relevant documents to the email id: [email protected].
The foreign business must submit the physical envelope within a month of submitting the online form. The FTA has a duration of four months to process the application. If FTA approves the claim, it will issue the refund in UAE Dirhams within 10 business days.
All othis information and documents must be in English or Arabic. Moreover, a foreign business can only claim refunds if it amounts to a minimum of AED2,000.0. Also, it can claim the refund within 12 months of incurring the expenses.
VAT Refund for UAE Nationals Building New Residences
UAE nationals can get refunds on the VAT they paid on expenses towards the construction of a new residence under this scheme. But, they need to fulfill the below conditions to become eligible:
- He/she must be a national of UAE and must hold a family book
- The expenses for which VAT refunds are claimed must relate to a newly constructed building used only for the purpose of residence of the applicant and/or her/his family
- Expenses must be for buying building materials used by builders in a residential building or its site, but excluding furniture or electrical appliances
- Expenses must be for services provided by contractors including those of engineers, builders, architects, and others required for the successful construction of a residence
If these conditions are satisfied, then the UAE national can claim VAT refunds. He/she must send the refund request to FTA within 12 months of the date of completion of the new residence. The date of completion can be an earlier date among the dates when the residence becomes occupied or when it receives the Building Completion Certificate.
To claim VAT refunds, applicants must submit the application on FTA’s e-services portal. The application requires the following details:
- Applicant details:
- Full name
- Email address
- Emirates ID
- Family book number
- TRN, if registered for VAT
- Claim details:
- Funder name
- Date of property completion certificate
- Applicant contact details
- Property plot number
- Building number
- Street, Area, City, Emirate
- Expenses details:
- Total of the tax claimed
- Confirmation if all the purchased materials have been used for building construction
- Banking details:
- Bank name
- Account holder’s name
- Account number
- Answer to the question of whether the applicant is planning to apply for a VTA refund for the retention of the same property later on
- Declaration on the accuracy of the information
Along with the application, applicants need to submit the following documents:
- Copy of Emirates ID
- Copy of family book
- Copy of property site plan
- Copy of property completion certificate and building permit
- Proof that the applicant is the owner of the plot of land in the UAE
- Copy of certificate or letter issued by applicant’s bank along with details such as the name of the account holder, bank’s name, and IBAN
- Other documents that provide evidence of the date the building got occupied
Within five business days of receiving the application for refunds, FTA will forward it to the Verification Body. FTA will notify the applicant of the same. The Verification Body may later ask for more documents or originals of any of the copies such as:
- Construction contract
- Consultancy agreement
- Variation orders
- Invoices of items bought
- Credit notes
- Lump-sum tax invoices and receipts
Once FTA receives the verification report from the Verification Body, it will process the refund application within 20 business days. FTA will make the payment to the applicant within five business days after processing and approval of the claim.
Expenses for goods such as furniture, swimming pools, removable appliances, audio equipment, children’s play structures, electrical components in the garage, and materials used for landscaping are not considered eligible under this law.
Expenses such as services of builders, architects, engineers, supervisory, building materials, doors, decorative materials, flooring, guttering, build-in kitchen, plumbing materials, central air conditioning and split units, permanent fencing, fire alarms and smoke detectors, heating systems, lifts and hoists, window frames and glazing, wiring inside the building structure, power points, shower units, and sanitary units are considered eligible under this law.
If the building is later used as a hostel, hospital, hotel, or guest house and the applicant has already received the refunds, then the FTA will ask the applicant to repay the VAT refunds received.
VAT refund scheme for foreign governments, certain international organizations, and diplomatic bodies
This scheme aims to encourage relevant organizations and persons to purchase supplies from UAE by refunding the VAT charged on these supplies. But they need to satisfy the below conditions to become eligible under this scheme:
- The acquisition of goods and services must be solely for official purposes
- The jurisdiction to which this organization or body belongs must have a similar scheme and must refund VAT for UAE entities
With so many refund schemes and detailed procedures of applying for VAT refund, it might get confusing to people. Getting the documents ready, filling up forms, and understanding the eligibility – everything is a challenge.
But, you can reduce your VAT compliance burden by contacting us – UAE VAT Consultancy – your one-stop solution for VAT problems. We can help you with the process of claiming VAT refunds for your expenses in the UAE.
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